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Series 7 practice questionhardMargin Accounts — SMA

A long margin account has a market value of $120,000 and a debit balance of $50,000. How much SMA is available, and what is the buying power?

  1. ASMA = $10,000; Buying power = $20,000✓ Correct answer
  2. BSMA = $15,000; Buying power = $30,000
  3. CSMA = $20,000; Buying power = $40,000
  4. DSMA = $5,000; Buying power = $10,000
Explanation

Why A — SMA = $10,000; Buying power = $20,000

Equity = $120,000 - $50,000 = $70,000. Reg T requirement = 50% x $120,000 = $60,000. SMA = Equity - Reg T requirement = $70,000 - $60,000 = $10,000. Buying power = SMA / Reg T rate = $10,000 / 0.50 = $20,000 (or SMA x 2). The client could purchase up to $20,000 in additional securities using the SMA without depositing additional funds.

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